What Is Cash Flow? Cash Flow Definition, Formulas, and Analysis

Cash flow is one of the best ways to understand how a business is performing. In fact, many experts advise startup businesses to prioritize positive cash flow even more than profitability. At the same time, established firms know that having a comfortable financial runway is all about how much cash is on hand.

In other words, understanding, managing, and maintaining positive cash flow is an essential part of running a successful business. It affords a business room to maneuver, pay expenses, and generate interest and investment income, while also making it attractive to lenders and shareholders. On the other hand, negative cash flow is a problem that demands immediate remediation without sufficient working capital.

That’s the short version. This article is a comprehensive guide for business owners and finance leaders who need to understand the ins and outs of how to stay cash positive.

What Is Cash Flow?

Cash flow is a measure of a company’s net cash inflows and outflows. It’s reported in a cash flow statement, which is also known as a statement of cash flows.

Cash flow is one of the first places to look when gauging a business’s financial health. When cash inflows exceed outflows, the company is cash positive and adding to its cash holdings. Conversely, when outflows exceed inflows, the company is cash negative and eroding its cash balance.

CFOs and finance teams should set minimum acceptable cash flow levels for the business and be prepared to take immediate action if cash flow falls below that minimum. This typically requires continuous analysis and work on improving cash flow. Cash flow analysis reveals how different business activities affect the timing and amount of cash moving in and out of a company, so that business leaders and investors can make the best possible financial decisions. The ultimate goal is to safeguard an adequate cash flow as well as establish a method for cash flow management.

Key Takeaways

• Cash flow is a measure of how much cash goes in and out of a company over a period of time.
• Cash flow statements are typically broken down into cash flow from operating activities, financing activities, and investing activities.
• When examined alongside income statements and balance sheet details, cash flow provides a clear picture of a company’s financial health and ability to stay in business.

Cash Flow Explained

Cash flow is a key performance indicator (KPI) that demonstrates a company’s ability to meet its immediate and short-term obligations. It’s what businesses need to “keep the lights on”—they can’t pay employees with a point of market share or suppliers with brand recognition—which is why it’s such a critical piece of financial management. Positive cash flow indicates that a business is liquid, meaning it can pay its bills, employees, and other operational expenses on time.

Beyond an indicator of short-term viability, cash flow—specifically from operations—reveals how efficiently a company converts its sales into cash. It shows whether core business activities are generating enough cash to sustain operations. As a result, consistently positive operating cash flow often indicates a well-run, efficient business model.

Further, businesses with strong cash flow are better able to fund growth and take advantage of new investment opportunities. It also makes a company more attractive to potential investors and lenders by demonstrating its ability to generate cash, service debt, and potentially provide returns to shareholders. Success feeds success.

Cash vs. Accrual Accounting

Accrual accounting and cash accounting are two accounting methods that differ in the timing of recording transactions, which can lead to significant differences between cash flow and profit.

• Accrual accounting is legally required for all public companies and any others that need to comply with Generally Accepted Accounting Principles or its international equivalent, International Financial Reporting Standards. Under this method, revenue is recognized when it’s earned, not when payment is received. Expenses are recorded as incurred, even if cash payments haven’t been made. This method causes a disconnect between profit and cash flow, as income can reflect sales to customers that haven’t paid and commitments to suppliers that haven’t been billed.
• Cash accounting is a simpler method that records revenue when cash is received and expenses when cash is sent out. This method makes cash flow easier to see on an income statement and narrows the difference between profit and cash flow. However, not all companies qualify for this method.

Depending on the method used, a company may look profitable from an accounting standpoint but could still struggle financially if customers pay late or not at all. It’s also why a cash flow statement is an important tool for assessing a company’s future financial health because even profitable companies can fail to manage cash flow effectively.

Why Does Cash Flow Matter?

Close cash flow management is critical for many reasons, not the least of which is keeping operations running. In fact, cash flow problems have long been cited as the leading reason that businesses fail; of late, approximately 50% of new businesses fail within their first five years, according to a May 2025 report from the US Chamber of Commerce. So it is not surprising that managing cash flow is also the foremost cause of stress for 80% of small-business owners, according to one survey, and the reason for lost sleep or burnout, according to another.

Beyond staying in business, cash flow sets the tone for relationships with suppliers, where timely payments for their goods and services can make you a valued partner with priority fulfillment that keeps your supply chain humming. Strong cash management is fundamental for employee relationships, too. Although 45% of small-business owners forgo paying themselves when cash gets tight, employees and contractors typically don’t have the same tolerance. In both cases, strained relationships can cause downstream operating problems, such as inventory stockouts and employee turnover.

In addition, prudent cash flow management is a way to mitigate risk. Accumulated cash reserves are critical to weather leaner seasons and unexpected events, although 70% of small and midsize businesses said they hold less than four months of cash reserves. And when internal funds aren’t enough, a track record of healthy cash flow makes accessing external credit easier and less expensive.

How Does Cash Flow Work?

Cash flow is a measure of a business’s total cash inflows minus cash outflows. Cash inflows are when cash comes into a business and can include customer payments for products or services, interest and returns on investments, contributions from owners, loan proceeds, and sales of assets. Outflows are when cash leaves a company, such as for payroll expenses, paying suppliers, paying back loans, distributions to owners, and paying taxes.

When a company’s cash inflows exceed its cash outflows, it is considered cash flow positive. Negative cash flow occurs when a company has more money going out the door—such as to buy inventory, cover operating expenses, or pay other bills—than it has coming in. It is not uncommon for businesses to have periods of negative cash flow, especially in seasonal industries, but perpetual negative cash flow is generally unsustainable.

Types of Cash Flow

Cash flow is generally divided into three categories: cash flow from operations, cash flow from investing, and cash flow from financing. Segmenting is a helpful way to understand the underlying factors that drive cash changes by showing how the company is generating and using cash by source. In turn, this level of detail provides context to the “quality of the cash flows,” meaning how reliable and sustainable they are. The different types of cash flows are included in assorted ratios and metrics that help internal and external stakeholders make various decisions and assessments.

Cash from Operating Activities

Cash flow from operating activities measures how much money a company brings in and spends on its core business operations. It includes cash inflows from customers, cash paid to suppliers, and any interest and taxes paid. This is generally considered the most important type of cash flow, reflecting the results of what the company is in business to do. Positive operating cash flow means that the company is generating enough cash to sustain or grow its current business. Cash flows from operations are thought to be the most valuable and reliable indicator—of “highest quality”—when assessing a company’s financial health.

Cash Flow from Investing Activities

This category shows cash used or generated from investment-related activities. It includes the purchase or sale of long-term assets, such as property, plant, and equipment; investment securities; and other businesses. It also accounts for any loans made to others and their repayment. In addition, cash flow from investing activities reflects a company’s growth strategy, resource allocation strategies for future expansion or contraction, and whether it is investing in its future or divesting assets. As such, interpreting investing cash flow can seem somewhat counterintuitive, with negative cash flow the result of a company buying new equipment or expanding operations. Along the same lines, positive cash flow might mean the company is selling off assets. Since cash flows from investing activities are “ancillary” and tend to be nonrecurring, they are considered lower quality.

Cash Flow from Financing Activities

Cash flow from financing activities measures the cash movements related to funding the company and its capital structure. It reflects how a company raises capital and returns money to investors, such as the issuance or repurchase of stocks (equity), bonds, and other debt; payment of dividends to shareholders; and proceeds or payment of other financing activities, like leases. Financing cash flow reveals a company’s financial strategy and ability to access capital markets. Positive cash flow from financing often means the company is raising capital through debt or equity issuance, which could signal plans for expansion or a need for additional funding. Negative cash flow typically means the company is paying down debt, buying back shares, or paying dividends, suggesting financial strength. Since this category of cash flow is less predictable and sustainable than operating activities, it is generally considered lower quality than operating cash flow, but interpretation often depends on the company’s stage and industry.

Free Cash Flow to Equity (FCFE)

Free cash flow to equity (FCFE) is a cash flow metric that measures how much cash is left over after accounting for operations, paying debts, and investing in the company. This “leftover” cash is available to return to equity shareholders. Calculating FCFE requires the company’s net income, depreciation and amortization expenses, non-cash expenses, capital expenditures, change in working capital, and total net debt. FCFE can determine the amount of potentially available cash for dividends, share buybacks, or to reinvest in growing the company. A consistently positive FCFE suggests the company is generating sufficient cash to fund shareholder returns. As a result, it’s commonly used by stock analysts to determine a company’s total value and estimated target share price.

Free Cash Flow to Firm (FCFF)

Free cash flow to firm (FCFF) is another slightly different cash flow metric that measures a company’s ability to make distributions to all investors. A company’s FCFF is calculated using all cash flows as they pertain to revenue, expenses, and reinvested cash. The leftover amount is the company’s FCFF. In other words, FCFF represents the cash that’s available to investors after a company pays all of its business costs and current and long-term investments.

The main difference between FCFF and FCFE is that FCFE deducts debt payments and interest, while FCFF does not. In other words, FCFF doesn’t consider the impact of long-term debt on free cash flow, which is why FCFF represents cash available to all investors, both equity and debt, while FCFE is available only to equity owners. FCFF offers a perspective independent of how a company is financed, which makes it useful for comparing companies with different debt levels.

FCFF is an important factor in many Wall Street stock analysts’ valuation processes. A positive FCFF value signals that a company has enough net cash from operations than it needs for its investing activities. A negative result signals that the company’s cash needs for investments exceed its operating cash generation, which could be due to growth initiatives or challenging business conditions. Though not necessarily a cause for alarm, a deeper analysis may be necessary.

Net Change in Cash

Net change in cash tallies all cash inflows and outflows over a period of time. The results indicate how much a company’s cash stores have increased or decreased in an accounting period. This higher-level number includes cash flows from operations, financing, and investing.

Calculate Cash Flow

A statement of cash flows provides all the information for calculating cash flow. The formula is:

Cash flow = Cash from operating activities + (-) Cash from investing activities + (-) Cash from financing activities

Let’s use a real-world example to illustrate. The consolidated statement of cash flows from The Coca-Cola Company, for the year ended December 31, 2024, shows the following, in millions:

Cash provided from operating activities: $6,805

Cash provided from investing activities 2,524

Cash used in financing activities (6,910)

Net cash flow for the period $2,419*

This means that Coca-Cola generated cash inflows from its operating activities, mostly from its significant net income. It also generated cash from investing activities through disposals of assets related to its bottling operations and selling its ownership interest in some other companies. During the period, Coca-Cola had significant net uses of cash in its financing activities, pertaining to paying back loans, repurchasing treasury stock, and paying dividends. (Further details can be found in the notes to the financial statements.)

*Since Coca-Cola is an international company, its cash flows were affected by currency exchange rates, resulting in a reduction in cash flows of $623. The published net cash flow for the period on its SEC Form 10-K is $1,796 ($2,419 – $623).

Calculating net cash flows is one of the broadest ways to analyze cash flow, as seen in the quick review of Coca-Cola’s cash flows. Three other high-level items to consider when looking at cash flows are comparisons with real cash, profit, and income and revenue.

Cash vs. Real Cash

When looking at a company’s net cash flow, it’s worthwhile to consider how inflation affects cash. During periods of rising inflation, the value of cash flows erodes over time. A dollar of net cash flow is worth more today than five years in the future due to inflation and the lost investment income that could have accumulated during that time. One way to incorporate the time value of money into cash flows is by looking at nominal cash flow compared to real cash flow.

• Nominal cash flow is the number most people think of when they visualize a company’s cash position. It measures total cash in minus total cash out. It’s the current face value of the cash.
• Real cash flow is the nominal cash flow adjusted for inflation. Because inflation reduces the purchasing power of cash in the future, real cash flow is more useful when comparing results over time or making long-term investment decisions.

For example, if a company had a nominal cash flow of $100,000 in 2023 and $105,000 in 2024, it might appear that the company’s cash flow improved. However, if the inflation rate was 5% during this period, the real cash flow for 2024 would be $100,000, calculated as:

Real cash flow = Nominal cash flow / (1 + Inflation rate)

$100,000 = $105,000 / (1 + 0.05)

In real terms, the company’s cash flow remained the same, despite the apparent increase in nominal terms.

Cash vs. Profit

The concept may seem counterintuitive, but a company can earn a profit even with a negative cash flow and vice versa. Cash flow focuses solely on the change in cash over a specific period of time. Profitability considers other factors, like operating margin, assuming the company uses accrual basis accounting versus cash accounting. Those elements can make a company more or less profitable without having any impact on cash flow. For example, depreciation is an expense that reduces net income or profit but does not impact cash flow.

Cash Flow vs. Income vs. Revenue

When calculating cash flow, revenue is one of the most important numbers—but revenue doesn’t necessarily equate to cash flow. Revenue represents the value of goods or services sold and delivered to customers. Under accrual accounting, it may include both paid-for sales and sales with outstanding invoices.

Revenue factors into profitability, but it isn’t a part of cash flow until customers pay their bills. The income statement shows a business’s total revenues, expenses, and net income or a company’s profits over a specific period of time.

How Is Cash Flow Used?

A company’s leadership, lenders, and investors may use cash flow information in many ways. Here’s a look at some of the most common:

• Management decisions: Successful managers and executives typically pay close attention to cash flow. Looking at past cash flow statements can help establish trends and identify opportunities for improvement. Cash flow forecasts are also useful when making decisions about borrowing and capital allocation. For example, the projected cash flows for an expansion project may be used to calculate the project’s internal rate of return (IRR), which is used to decide whether an investment makes financial sense.
• Lender underwriting: When a business wants to borrow money, the lender will review its credit history and finances, including cash flows. This can help the lender determine whether the business can pay back a loan as agreed.
• Investment analysis: Investors use cash flow to help determine a company’s value. Cash flow details may flow into a discounted cash flow (DCF) model or multiple analyses, like the price-to-cash flow ratio. These tools help investors determine a stock’s intrinsic value, which is used in stock-buying decisions.
• Evaluating liquidity: Cash flow information is crucial for evaluating a company’s liquidity position, meaning its ability to meet its short-term obligations and fund its operations. Cash flow statements and analysis, especially of operating cash flow, show the rate at which business operations generate cash. This is useful for evaluating whether the company is sufficiently liquid for the near term and whether it will require external financing for future growth.
• Forecasting: Financial forecasting relies on cash flow information to help businesses plan and execute future strategies. Cash flow forecasts identify likely cash shortfalls and surpluses in advance, which influence the timing of major expenditures or investments. It also gives management the foresight to put in place alternative funding, such as a revolving credit line, for situations like seasonal cash flow fluctuations or when launching new products.

Managing Cash Flow

Cash flow needs to be managed at the front end, in addition to being analyzed retrospectively in all the ways discussed earlier. Financial managers can use many tactics to optimize cash flow. In fact, some larger businesses employ dedicated teams tasked with controlling and steering cash flow. At smaller businesses, that responsibility may fall to the owner, controller, or chief financial officer. Regardless of business size or industry, targeted adjustments in the following business areas can boost and strengthen cash flows.

• Sales are the primary source of cash inflow for most businesses, so efforts to increase sales can result in greater cash flow. Targeted efforts, such as implementing pricing strategies that maximize revenue and improving sales forecasting to better predict inflows, can enhance cash flow. At the same time, broader initiatives can be effective, including diversifying the customer base to reduce dependency on a few large clients and developing recurring revenue streams, such as subscriptions or service contracts.
• Pricing directly affects sales and cash inflows. Regularly review and adjust pricing strategies to safeguard profit margins. This could include using demand-pricing strategies during peak periods or offering tiered pricing or bundled packages to appeal to different customer segments. It’s equally helpful to analyze the impact of discounts, which reduce cash inflow, and marketing promotions, which increase cash outflows.
• Accounts receivable (AR) and accounts payable (AP) represent future cash inflows and outflows, respectively. Initiatives that accelerate or increase the amount of AR collection boost cash flow. Some strategies for speeding up AR turnover are to offer customers early payment discounts and use electronic invoicing and payment methods. It is also helpful to implement stricter credit policies and regularly review AR aging to identify and address slow-paying customers. On the AP side, lengthening payment terms for flexibility and staggering payment dates can avoid the cash crunch of paying all bills at once. Reviewing vendor contracts to verify for optimal terms, along with implementing a purchase order system, can confirm that all purchases are properly authorized and without charges for unnecessary services or goods.
• Inventory ties up cash and affects cash flow through purchasing and holding costs. More precise demand forecasting can help optimize inventory levels to balance cash flow strain with missed sales from stockouts. Implementing just-in-time (JIT) inventory management does this and also reduces holding costs as a result. Put processes in place to identify and liquidate slow-moving or obsolete inventory.
• Operating expenses represent a wide variety of regular cash outflows, so any scheme that reduces the rates paid or cuts unnecessary expenses results in increased net cash flow. Negotiating better terms with suppliers, implementing energy-saving measures to reduce utility costs, using technology to automate processes, and outsourcing noncore functions are common approaches to lowering operating expenses.
• Capital expenditures (CapEx) tend to be significant cash outflows, so while they often bring long-term benefits, they need extra attention from a cash flow perspective. In addition, the timing of major capital expenditures may need to be coordinated with periods of strong cash flow or a capital budgeting process that accumulates the necessary cash reserves in advance.
• Lending proceeds are immediate cash inflows, but the repayments and interest represent future cash outflows. Securing favorable lending terms through good credit ratings is one way to bolster cash flow in this area, as is refinancing existing debts to take advantage of better terms. Additionally, mixing short-term and long-term financing can help balance cash flow needs. Alternative financing options, like invoice factoring or revolving credit lines, may also help reduce the impact on cash flow.
• Taxes and cash flow management involve finessing the timing of tax payments and implementing tax-planning strategies that minimize a company’s legal tax liability. Taking advantage of tax credits and deductions can reduce the amount owed, so businesses should stay up to date about changes in tax law. Using estimated tax payments spreads out tax liabilities throughout the year, avoiding a single big hit to cash.
• External impacts are a broad assortment of factors that can significantly affect cash flows, such as inflation, recession, currency fluctuations, supply chain disruption, customer distress, and labor strikes. One common thread is that external forces are often unpredictable, but it’s helpful to proactively develop contingency plans and build cash reserves to cushion external shocks. Diversifying suppliers and customers, using hedging instruments, and purchasing business interruption insurance can also protect cash flow from external risks.

How to Improve Cash Flow

Improving cash flow isn’t always easy, but managers can use a combination of strategies to move the needle in the right direction. Here are some common cash flow improvement policies to consider:

• Negotiate a discount with vendors for faster payment: Early payment discounts reduce the amount of cash leaving the business and add flexibility to the business model.
• Automate AP and AR: Automated AP and AR systems help bookkeepers better track incoming and outgoing payments. Better payment management can help a business take advantage of optimal payment terms, solve invoicing problems, and avoid late payments from customers.
• Embrace JIT inventory management: Keeping less inventory can boost cash flow. JIT is an inventory management system where a business synchronizes inventory with forecast demand, which improves cash flow by reducing inventory carrying costs.
• Lease instead of buy: Property and equipment purchases tend to be large CapEx. With a lease, a business can reduce its up-front cash expenditure and spread payments out over a set schedule. Leasing works like a loan in many ways, so it’s important to look at all of the costs involved before adopting a leasing strategy.
• Improved workforce management: Most companies prefer to avoid layoffs; more efficient workforce practices and a human resources management system can conserve cash and help better align payroll expenses with business needs. Strategies may include flexible scheduling and cross-training employees.

Every business is distinct, so what works for one may not work for another. When trying to improve a company’s cash flow, review accounting statements and closely examine critical KPIs, such as customer acquisition cost, gross margin, and burn rate, which may indicate ways to work more efficiently.

Cash Flow Analysis

Stock analysts and accounting teams may analyze cash flow details to determine whether a stock is well-priced and to make financial decisions. Here are some common analysis ratios and measures that may be useful to know.

Debt Service Coverage Ratio

The debt service coverage ratio measures a business’s ability to pay its outstanding debt obligations. If debt servicing payments exceed cash flow from operations, a company may struggle to keep up with payments.

Free Cash Flow

Free cash flow is a measure of how much cash a company generates from operations. Free cash flow is cash available for debt payments, dividends, or reinvestment in the company for growth. A high free cash flow level means a company likely has a healthy financial position for ongoing operations. A negative free cash flow could indicate a problem before it shows up on the income statement.

Unlevered Free Cash Flow

UFCF calculates a company’s cash flow before interest payments. This is a useful data point because it shows how much uncommitted cash a company has available for operations. It’s also particularly useful when comparing companies with different capital structures.

Positive Cash Flow

Positive cash flow is an indication of a business’s health. When a company brings in more cash than it spends consistently over time, it usually indicates a healthy business. But cash flow that is higher than average may indicate issues, such as limited reinvestment to foster company growth.

Negative Cash Flow

Negative cash flow means that a company had more cash go out than came in over a given period. That isn’t always a concern if it happens only occasionally or in the case of heavily seasonal businesses. It could also indicate that a large investment or expansion project is underway. But persistent, negative cash flow for long periods of time can signal serious problems—perhaps even the potential for a future bankruptcy.

Cash Flow Forecasting

Business leaders often create cash flow forecasts to inform stakeholders of projected future cash position changes. This information can help the business make decisions related to borrowing, investments, employee bonuses, and shareholder dividends. There are various methods for creating cash flow forecasts, with the two most common being the direct method and the indirect method. For investment analysis, cash flow forecasts are plugged into a discounted cash flow model to determine a company’s value and target stock price.

What Is a Cash Flow Statement?

A cash flow statement is a summary of a business’s cash flow details. It is divided into sections for cash flow from operating, investing, and financing activities.

Large companies generally create a consolidated cash flow statement that includes the cash flow details from all subsidiaries and holdings that require disclosure. Small businesses can generate their own cash flow statements by working with their accountant or using software built for either bookkeeping or accounting.

Cash Flow Statement Example

The following example is the full text of The Coca-Cola Company’s consolidated statement of cash flows for the year ended December 31, 2024. This statement is part of the company’s SEC Form 10-K, which is audited and filed annually. All 10-Ks are publicly available. Note that all three sections are included: operating, investing, and financing activities. As shown, cash flow statements are commonly reported comparatively to similar periods in prior years.

Using a Cash Flow Statement

Cash flow statements give managers, investors, lenders, and analysts critical details about a company’s finances and overall health. For example, business managers rely on cash flow statements to evaluate whether the company has enough cash to meet payroll and other short-term obligations, as well as to spot negative trends early and take corrective action. Investors use cash flow statements to pinpoint potential red flags, like consistent negative cash flows, or to assess the quality of a company’s earnings. Cash flow information helps lenders calculate debt service coverage ratios—an important step in determining creditworthiness. Each of these stakeholders depends on up-to-date and accurate cash flow statements, which is a core function of good accounting software. More advanced software also comes with analysis tools that make cash flow analysis easier and faster.

Balance Sheet vs. Cash Flow Statement: What’s the Difference?

Balance sheets and cash flow statements are two types of financial statements with different purposes and types of information. The balance sheet is a snapshot of a company’s financial position at a specific point in time. Its components are assets, liabilities, and equity. Cash flow statements focus solely on cash transactions, showing the inflows and outflows of cash over a period of time, classified into operating activities, investing activities, and financing activities.

Although the two statements offer separate perspectives, reading them together reveals the story behind the numbers, showing how strategic decisions translate into financial outcomes. This integrated approach provides additional understanding of asset utilization, debt management, investment strategies, and working capital efficiency. For instance, together they can expose whether a company’s growth is sustainable or if the current course of action sacrifices long-term stability for short-term gains, such as by selling off key assets for more than book value.

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Cash flow is a business’s ability to generate cash from operating, investing, and financing activities. Distinct from profitability, cash flow determines how a company meets its obligations and funds growth. For this reason, business owners and managers must understand and effectively manage cash flow for long-term success. Cash flow statements and various cash-centered metrics are instrumental for tracking and planning. Implementing operating policies and strategies across the business that support healthy cash flows can have a beneficial impact on liquidity. Together, businesses can be better positioned to navigate challenges, seize opportunities, and drive sustainable growth.

Cash Flow FAQs

What can cash flow tell you?

Cash flow tells you how much money is moving in and out of a business over a specific period of time. It provides information about a company’s liquidity, operational efficiency, and ability to fund its activities and growth.

What is the main purpose of cash flow?

The main purpose of cash flow is to track and analyze the movement of cash into and out of a business. It helps managers, investors, and creditors assess a company’s financial health and ability to generate cash for debts, fund operations, and invest in growth.

What is considered a healthy cash flow?

A healthy cash flow is when a company consistently has more cash coming in than going out, referred to as positive cash flow. The specific amount considered “healthy” varies by company but should generally be sufficient to meet operational needs and provide a buffer for unexpected expenses.

Is it OK to have negative cash flow?

Temporary negative cash flow can be acceptable, especially for a growing business that is investing heavily in expansion or during seasonal fluctuations. However, ongoing negative cash flow is usually unsustainable in the long term, indicating that the business model uses more cash than it generates.

Is too much cash flow bad?

Strong cash flow is generally seen as positive, but extremely high cash flow might indicate that a company is not reinvesting enough in its growth or not returning value to shareholders. It could also suggest missed opportunities for expansion or anemic research and development efforts that can cause problems down the road.

How can a company be cash flow positive but not profitable?

A company that uses the accrual method of accounting can be cash flow positive but not profitable due to the differences in timing of when revenue and expenses are recognized versus when cash is received or paid. For example, amounts due to vendors for supplies that have been delivered are recorded as expenses on the income statement and reduce profit when incurred, but they are not reflected as cash outflows since no cash has been paid.